Investment Direction – Generic Portfolio Guidance

By now, you should have gained some insight into your own investment risk attitude. You should also have itemised your main financial goals and understood how much cash might be required at different stages of your life.

You may be in the fortunate position of not needing to invest into real assets for future life events. If, alternatively, you have identified a requirement to put money aside in order to meet certain objectives, then now may be a good time to plan a course of action.

The first point to make is that, irrespective of the rate of investment return demanded to meet a future financial need, you should never accept a level of risk with which you do not feel comfortable.

For example, if calculations show that a 7% per annum investment return will be required when only 3% p.a. interest is available for cash on deposit, you should appreciate that you are unlikely to meet your financial targets unless you are content to accept the greater risk and volatility associated with, for example, holding stock market investments. In the same way that it`s often futile to expect a consensus from a group of economists, agreement on asset allocations within the financial world is also hard to reach. In order to help you, apart from conducting our own research and taking the average asset allocation position of prominent financial groups (opposite), we have listed (below) a couple of sources you may find useful for reference purposes.

The FTSE WMA Private Investor Indices (formerly APCIMS), a trade association which represents approaching 200 firms, produces a set of calculations which, amongst other things, provides a basis for reviewing the asset allocation and structure of your portfolio.

The publication, “Which?” has designed a helpful website where an attempt has been made to calculate levels of investment risk in different asset allocations – from which it has built eight different portfolios.

Investment Portfolio 1 – Risk Group 1

You are totally unprepared to put any of your capital at risk and you prefer to invest all available funds on deposit through a bank or building society, irrespective of duration.

N.B. (1) Before consideration is given to creating an investment portfolio, we would recommend you set aside cash resources equivalent to at least 3 months` expenditure. (2) Cash = Term deposits held in U.K. licensed banks or building societies.

Investment Portfolio 2 – Risk Group 2

Cash 40%

Fixed Interest 40%

U.K. Equity 15%

International Equity 5%

Pacific & Emerging Markets Equity 0%

Asset Class – Very Cautious

You dislike risk and prefer the certainty of outcomes, wherever possible. Security of capital is important to you, even though this may translate into lower rates of return. You may be willing to accept a minor proportion of your overall funds being invested into longer term assets, such as stocks and shares, in order to achieve higher returns over the medium to long term.

N.B. (1) Before consideration is given to creating an investment portfolio, we would recommend you set aside cash resources equivalent to at least 3 months` expenditure. (2) Cash = Term deposits held in U.K. licensed banks or building societies.

Investment Portfolio 3 – Risk Group 3

Cash 20%

Fixed Interest 40%

U.K. Equity 25%

International Equity 15%

Pacific & Emerging Markets Equity 0%

Asset Class – Cautious

You are prudent in your outlook. Whilst you are attracted to the security of returns, you are willing to accept some exposure to variable or non-guaranteed benefits where you can see an advantage in doing so. You are prepared to tolerate a relatively low level of risk on investments over the longer term in order to achieve potentially higher returns than deposit rates. You will accept some stock market exposure in your portfolio.

N.B. (1) Before consideration is given to creating an investment portfolio, we would recommend you set aside cash resources equivalent to at least 3 months` expenditure. (2) Cash = Term deposits held in U.K. licensed banks or building societies.

Investment Portfolio 4 – Risk Group 4

Cash 0%

Fixed Interest 40%

U.K. Equity 30%

International Equity 30%

Pacific & Emerging Markets Equity 0%

Asset Class – Balanced

You require a broad-based approach for medium to long term investment, including exposure to stock-market based funds investing in the U.K. and major overseas markets. You are prepared to accept a moderate degree of risk within a diversified portfolio, and you accept that the value of capital may fall in return for potentially good medium to long term rewards.

N.B. (1) Before consideration is given to creating an investment portfolio, we would recommend you set aside cash resources equivalent to at least 3 months` expenditure. (2) Cash = Term deposits held in U.K. licensed banks or building societies.

Investment Portfolio 5 – Risk Group 5

Cash 0%

Fixed Interest 25%

U.K. Equity 30%

International Equity 35%

Pacific & Emerging Markets Equity 10%

Asset Class – Balanced/Adventurous

You are prepared to accept a higher than average degree of risk and to invest predominantly in equity-based assets. Security is a secondary consideration to your pursuit of improved rates of return. You understand that your portfolio will include a higher degree of exposure to overseas equities, and to a lesser extent, emerging economies, and that the performance of such sectors can be more volatile

N.B. (1) Before consideration is given to creating an investment portfolio, we would recommend you set aside cash resources equivalent to at least 3 months` expenditure. (2) Cash = Term deposits held in U.K. licensed banks or building societies.

Investment Portfolio 6 – Risk Group 6

Cash 0%

Fixed Interest 10%

U.K. Equity 30%

International Equity 40%

Pacific & Emerging Markets Equity 20%

Asset Class – Adventurous

You are prepared to invest predominantly in equity-based assets, with the higher proportion being international and containing an increased exposure to emerging economies. Security of capital is subordinate to your objective of achieving superior investment returns over the medium to long term.

N.B. (1) Before consideration is given to creating an investment portfolio, we would recommend you set aside cash resources equivalent to at least 3 months` expenditure. (2) Cash = Term deposits held in U.K. licensed banks or building societies.

Investment Portfolio 7 – Risk Group 7

Cash 0%

Fixed Interest 0%

U.K. Equity 20%

International Equity 40%

Pacific & Emerging Markets Equity 40%

Asset Class – Very Adventurous

You are willing to adopt a strategy that is speculative in approach and are seeking to maximise potential benefits through investing exclusively in UK and overseas equities, with a high emerging economy representation. You realise that the performance of the sectors in which you choose to invest may be extremely volatile and you accept the correspondingly increased risk of a loss on your capital.

N.B. (1) Before consideration is given to creating an investment portfolio, we would recommend you set aside cash resources equivalent to at least 3 months` expenditure. (2) Cash = Term deposits held in U.K. licensed banks or building societies.

Notice

money-guidance.co.uk only contains market information and does not constitute advice or a personal recommendation in any way whatsoever. The products shown will be arranged on a non-advisory basis, unless otherwise agreed. If you are at all unsure of the suitability of a particular product for your circumstances you should seek independent financial advice. Please refer to our Regulatory Disclaimer and Privacy Policy for further information.

*A CIC is a limited company which is established for community purposes, and the assets and profits are dedicated to this cause. In other words, this business has been designed as a social enterprise, and not to benefit company shareholders.